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My favourite Warren Buffet quote is “Someone's sitting
in the shade today because someone planted a tree a long time ago.”

Our society today is always looking for the quick fix.
The fastest way to get rich, make a million and be a superstar. TV shows like Australian
Idol, Australia’s got Talent or The Voice suggest to its audiences that you can
be a star overnight. The reality is that most of the contestants who make it to
the finals have been crafting and honing their talents over many years. Small
steps daily to reach their goal. And so it is with investing.

What are 5 steps to building a great investment
portfolio?

1. Think long term

Because
investment markets go up and down all the time, it is only over longer periods
of time that the trajectory of returns consistently shifts upwards. Long term
can be different for different people, but if you’re investing in real estate
or shares, give yourself at least 7 to 10 years. And the more time you have
until retirement, the more you’ll be able to maximise returns in your super
fund.

2. Diversify (don’t
put all your eggs in one basket)

'Diversification'
is one of the best tactics to reduce the total risk of your investment
portfolio. A loss made on one type of investment may be balanced by a gain on
another.

Having
a spread of different types of investments means you won’t suffer a big loss
just because one sector is doing badly. If one business you've invested in
fails, you won't lose all your money. Some of the types of baskets you can use
to spread your money around are: different assets (shares, property, bonds),
different fund managers, different markets (not just Australia!) and at
different times (invest at regular intervals to reduce the risk of bad timing).

3. Know the risks and the risks you’re
prepared to take.

All
investments have risks. Even cash! (If you leave your money in cash for too
long, its value will be eroded by inflation and it’ll be worth less than when
you started). Investing is never going to be risk free. With careful planning,
you can identify and manage the risks that are most likely to trip you up.
Diversification is the best tool you have for overcoming investment risk. It’s
also important to know how you feel about the risks of investing. How long you
have to invest also factors into the decision. Putting all your savings into a
share portfolio knowing you’re going to need it in 12 months’ time for that
holiday in Brazil is taking a big risk. Don’t be surprised if you end up with
no spending money!

4. Keep track

I’m
not suggesting you need to plot daily unit prices on a spreadsheet but good
record keeping is an essential part of investing. Treat your paperwork like
your best friend—it will save you from stress in the future.

To
ensure you stay on track, regularly review your plans and check on your
investments. Nothing stays the same so it’s important to keep your portfolio up
to date and moving with the times – both with your changes and the investment
landscape.

5. Get Advice

Last
year’s winner is often this year’s loser. Return figures are always past
performance. For example, your average diversified growth fund (see point 2) returned around 13% for the 12 months to April
2013. Great! But does that mean you’ll get the same result next year? No way!
At Annual Statement time, I see lots of people wanting to move from one
investment option to another or move from one product to another. But don’t
just dive in at the deep end and pick last year’s winner. Take the time to meet
with us and get advice on the best investment options for you going forward. With
our specialist skills and knowledge, we set your investment strategy, create
your asset allocation and match it to your time horizon and tolerance to
investment risk. Our expertise will see you ahead of the game in no time.

Do
you need a review? Contact us today on 02 9417 6011 and book your appointment.

Blog Archive

Responsibility for the content and opinions expressed herein rests solely with the author and opinions expressed do not necessarily represent the views and opinions of Professional Wealth Services Pty Ltd. The information on this website is general in nature and may not be relevant to your individual circumstances. You should refrain from doing anything in reliance on this information without first obtaining suitable professional advice. You should obtain and consider a Product Disclosure Statement (PDS) before making any decision to acquire a product. This information is for Australian residents only. Whilst care has been exercised, the taxation information contained is provided as a guide only and may not be relied upon. If in doubt, you should seek independent tax advice from a qualified tax adviser.